Market Matters Report / The Hickman Report - Saturday 7 June 2014

By Market Matters 07 June 14

The Hickman Report - Saturday 7 June 2014

The Hickman Report - Saturday 7 June 2014


Market Matters Summary for Saturday 7th June 2014

 

  • The ASX200 closed down 28 points last week, again ignoring all-time highs from the Dow which was up 207 points. The support continued from the high yielding banks & Real Estate, while the rest of the market fell. 
  • On Friday we again saw fresh 2104 highs from the US NASDAQ & German DAX I remain confident in my prediction of a 10% correction from these indices in June / July that is very likely to flow into the ASX200. 
  • The trigger for any correction is hard to predict, especially after the ECB dropped interest rates to negative, clearly supporting “risk assets” –nowhere in the history of mankind have interest rates been negative until now!!! 
  • This “free money” is finding its way into all asset classes including stocks, bonds and property. Australian banks yielding 5% fully franked compared to long term rates at 3.5% & perceived risk almost zero (see the VIX - chart 6) creates a very complacent market buying with a “cannot lose” belief. 
  • However, in this growth free, low interest rate, environment banks make sense so I will be a happy buyer into a decent correction but note domestic banks are very expensive compared to their world piers primarily due to franking credits – any changes to domestic taxation should be watched carefully. 
  • Inflation in the US leading to rising rates is the likely catalyst to end the music e.g. Seattle just raised the city’s min. wage to $15 p.h. compared to the country’s typical $7.25 p.h., this will eventually create inflation. Chart 7 shows the US 10 year bond yield, I believe a kick up to 3.25% is imminent, this equates to a 26% rise from current rates. 
  • I repeat yet again tops are extremely hard to pick as markets like to go up and they often take a few attempts to fail. I am comfortably +55% in cash looking to buy a correction, please note I am still net bullish for the next year or two yet and am only calling a 10% correction in offshore markets, but only back to March 2014 lows.


What Mattered Last Week

Last week was noticeably weak for the ASX200 as we ignored positive offshore influences, but again individual sector / stock performance told very different stories. Banks were again strong as investors seem only to be happy at “the safe yielding big end of town” but retail became the hot potato that nobody wanted to hold. As I said last week this strength divergence I believe is a negative indicator for the approaching few months:

On the performance front, the below stocks caught my eye over the last 5 trading days:

  • Positive Performance – Bank of QLD (BOQ) +1.8%, Bendigo Bank (BEN) +1.5% & Fortescue (FMG) +2.5%
  • Negative Performance Crown (CWN) -3.1%, Flight Centre (FLT) -5.8%, Harvey Norman (HVN) -6.6%, Myer (MYR) -4.7%, Origin (ORG) -3.7%, QBE -4%, Ramsay Health (RHC) -3.5%, REA Group (REA) N-5.7% & Wesfarmers (WES) -2.2%.
  1. I am still holding approx. 55% cash, with equal weighting in Suncorp (SUN), M2 Group (MTU) & OZ Minerals (OZL). If I am wrong and we have no correction, I simply make a small amount of interest and can relax and look to reinvest in coming months.
  2. Be patient, it can be a frustrating to wait, I remain confident a decent retracement is coming, BUT it may take weeks / months to unfold but with overseas indices finally hitting my targets I believe the time is approaching fast.


What Matters this week

  • No major change I am looking for a decent correction very soon in equities and with overseas indices currently hitting my targets it may well unfold in the next 2-6 weeks.
  • I remain bullish going forward for the next year, or two, hence if we do get my predicted correction I will become an aggressive buyer.
  • Overall I believe the current 5 year bull market is maturing fast and hence retracements will become deeper creating buying opportunities. I am looking for at least two decent corrections in the next 6-12 months, with at least one of them likely to be over 10%.
  • My estimate where the overall market gives great value is around 5100, the lows of 2014, and I see the market as overvalued above 5500, a strong $A and weakening Iron Ore price is clearly weighing on the market.
  • For me now sitting in a large % cash holding comes down to patience and constant evaluation of opportunities.

     

     

  • Please note most trading and investing opportunities happen in under 5% of the time, in other words 3 weeks of the year, so patience / planning is vital Any questions please do not hesitate to contact us.

 


 

Potential Investing for the coming week

  • Take profit on Suncorp over $14, especially if ASX200 is close to 5550 and the NASDAQ 3800.
  • Take profit on MTU around $7.50 with stops under $5.20.
  • I remain a buyer of Seek (SEK) between $15-15.50 with stops under $13.50.
  • I remain a buyer of Fairfax (FXJ) under 90c.
  • I am new buyer of Ansell (ANN) around $19 targeting $23 with stops under $17.50.
  • I will continue to look for buying opportunities if equities correct.
  • Watch for specific ideas in am reports and Alerts.

 

 

 

Potential Trading for the coming week

 

  • I am comfortable being ½ short the ASX200 around 5580 with stops over 5495.
  • I would use a close on the NASDAQ under 3700, &/or the DAX under 9750, as a trigger to add to this position.
  • I still like the “pairs trade” BUY Woodside (WPL) and sell RIO.
  • I am now a buyer of Resmed (RMD) in the $5.50 region, targeting +6 with stops under $5.30.

 


 

A list of some sleepers are below, some have already started to show signs of life, we will look to continually add to this list over coming months:

  • AWC, CSS, FXJ, KCN, KDL, LEI, & PEN. – I own the ones underlined.


Market Matters’ View at a glance

The below views are illustrated in detail by the charts beneath.

Bullish: ANN (m), CBA (m), CSL (m), Dow (m), Fairfax (m), IBEX (m), MTU (m), NASDAQ (m), Nikkei (m), OZL (m), RMD (w), SEK (m), S&P (m), SUN (m), & WPL (m).

Neutral: AMP (w), ASX200 (d), Australian Banks (d) & (m), BHP (w), CWN (m), FMG (w), FTSE (w), Hang Seng (w), IBEX (w), JBH (w), NZ (m), REA (m), Retail Index (w), S&P (w) STOXX (w), TLS (m), Vocus (w), WES (w) & WOW (m).

Bearish: Banks (w), BOQ (w), BHP (m), China (m), Copper (m), Dax (w), Gold (w), Magellan (MFG) (w), NASDAQ (w), NCM (m), QBE (w) & RIO (w).

  • Time Frames - (d) = daily, (w) = weekly and (m) = monthly.

e.g. A (d) implies I am bullish on a daily basis but a (m) would mean I am bearish on a monthly / longer term basis.

 

Super Portfolios Holding

A number of my ideal stocks to buy will hopefully (a dangerous word) to get close in coming weeks, I intend to remain patient at present and focus on the specific stocks and levels above.

  • I am long -, OZ Minerals, M2 Group (MTU) and Suncorp (SUN).
  • I am long AWC & KDL as a “sleeper”. AWC looks great and KDL awful.
  • Cash, +55%.

 

Australian ASX200

I remain mildly bullish on a longer term basis but I anticipate a decent correction from June – July.

Chart 1 – ASX200 Monthly Chart 

Chart 2 – ASX200 Weekly Chart 

Chart 3 – ASX200 Weekly Chart 

Chart 4 – ASX200 Daily Chart 

Chart 5 – SPI (Share Price Index) Futures 60 mins Chart 

Chart 6 – Volatility Index VIX Weekly Chart

Chart 7 – The US 10 year Interest Rate Monthly Chart

Chart 8 – New Zealand 50 Index Monthly Chart

 

American Equities

The American indices reached my sell levels in early March and the NASDAQ then proceeded to fall 8.7%. I now expect another 8-10% fall from the 3800 region that should commence very soon.

Chart 9 – Dow Jones Index Monthly Chart 

Chart 10 – Dow Jones Index Daily Chart 

Chart 11 – S&P 500 Monthly Chart 

Chart 12 – S&P 500 Weekly Chart 

Chart 13 – NASDAQ Monthly Chart 

Chart 14 – NASDAQ Weekly Chart

 

European Indices

The DAX now looks very vulnerable and similar to the NASDAQ, with failure into current fresh highs my expectation.

Chart 15 – Euro Stoxx 50 Weekly Chart 

Chart 16 – FTSE Weekly Chart 

Chart 17 – Spanish IBEX Monthly Chart

Chart 18 – Spanish IBEX Weekly Chart 

Chart 19 – German Dax Monthly Chart

 

Asian Indices

Asian indices remain net positive, but messy short term. The Nikkei continues to be volatile and is now threatening a decent correction.
The China Index remains bearish long term with another +18% downside.

Chart 20 – Hang Seng Weekly Chart 

Chart 21 – China Shanghai Composite Monthly Chart 

Chart 22 – Japanese Nikkei 225 Monthly Chart


Australian Stocks

Buying sustainable yield and selling XJO calls has been a logical strategy over recent years. However, the risk of rising bond yieldsresulted in me now recommending a more balanced portfolio. The is clearly no sign of this at present as banks remain the backbone of the ASX200.

  • Bank of Queensland is likely to be my preferred banks at some stage in the coming year.
  • I have no interest in “picking the bottom” of the Iron Ore space at present.

Chart 23 – BHP Weekly Chart 

Chart 24 – BHP Daily Chart 

Chart 25 – Woodside (WPL) Monthly Chart 

Chart 26 – RIO Weekly Chart 

Chart 27 – FMG Weekly Chart 

Chart 28 – Vale (US) Weekly Chart 

Chart 29 – Newcrest Mining (NCM) Monthly Chart 

Chart 30 – JB Hifi (JBH) Weekly Chart 

Chart 31 – CBA Monthly Chart

Chart 32 – ANZ Bank (ANZ) Monthly Chart

Chart 33 – Westpac Bank (WBC) Weekly Chart

Chart 34 – National Bank (NAB) weekly Chart

Chart 35 – Macquarie Bank (MQG) weekly Chart 

Chart 36 – Bank of Queensland (BOQ) Weekly Chart 

Chart 37 – AMP Weekly Chart 

Chart 38 – Suncorp Group (SUN) Monthly Chart 

Chart 39 – Insurance Australia (IAG) Monthly Chart 

Chart 40 – QBE Insurance Monthly Chart

Chart 41 – Magellan Group (MFG) Weekly Chart 

Chart 42 – Wesfarmers Ltd (WES) Weekly Chart

Chart 43 – Woolworths Ltd (WOW) Monthly Chart

Chart 44 – Seek Ltd (SEK) Weekly Chart 

Chart 45 – Real Estate Australia Group Ltd (REA) Monthly Chart 

Chart 46 – Vocus Communications (VOC) Weekly Chart 

Chart 47 – Telstra (TLS) Monthly Chart 

Chart 48– M2 Group Ltd (MTU) Monthly Chart 

Chart 49 – Crown Resorts Ltd (CWN) Monthly Chart 

Chart 50– Ansell Ltd (ANN) Monthly Chart 

Chart 51– CSL Ltd (CSL) Monthly Chart 

Chart 52– Resmed (RMD) Weekly Chart 

Chart 53 Fairfax Media (FXJ) Monthly Chart 

Chart 54– Australian Dollar (AUD) Weekly Chart

The $A is looking choppy and is currently having a good bounce, with the potential to challenge the 97c area.


Commodities

Gold looks to have completed a strong rally towards the 1,400 area. Next stop 1,100?

Copper remains very negative on a longer term basis, a very similar chart pattern to Newcrest Mining (NCM) and unfortunately we all saw what happened there.

Iron Ore is plumbing 5 year lows but related stocks are pricing this area to hold.

Chart 55 – Gold Monthly Chart

Chart 56 – Copper Monthly Chart 

Chart 57 – Iron Ore Monthly

 

Please note this is my personal TECHNICAL opinion of markets and "General Advice" taking no account of individual’s circumstances.

Have a great week,

Shawn Hickman
marketmatters.com.au

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